MasterCard or Visa For Foreign Purchases - Which is Cheaper for Canadians?

With the weakening of the Canadian dollar, and travel coming around the corner, Canadians are looking for the cheapest way to travel and buy goods from the United States. To help out, we’ve done a study to determine whether Visa or MasterCard provides better foreign currency exchange rates for Canadians when using their credit card south of the border.

We also determined the best Canadian credit card for foreign transactions. Visa and MasterCard rely on different processes to determine their foreign exchange rate. Neither network makes its foreign exchange methodology public. To establish which of the two networks charge less, and how they compare to foreign exchange spot rates, we compared the historical exchange rates of Visa, MasterCard, Bloomberg and the Bank of Canada once a week for the past 52 weeks.

Visa & MasterCard Exchange Rates Compared

Here’s what we found:

1. MasterCard charges a lower exchange rate than Visa 70% of the time
2. MasterCard’s average exchange rate was 38 basis points (.38%) less than Visa’s over the course of the 52 data points.

As the chart clearly depicts, MasterCard charges a lower exchange rate than Visa a vast majority of the time. Moreover, it wins by a greater margin, more often than Visa. As a result, if you were to have used both cards on each of the 52 days measured, you would have saved .38% using your MasterCard instead of your Visa.

In real world terms, if you had spent $5,000 in the United States, you would have saved, on average, $19 using your MasterCard instead of your Visa – not a huge nominal difference. Given that the difference between Visa and MasterCard exchange rates were only .38%, we believe cardholders should also pay significant attention to the difference in the value of each cards’ rewards program, since they can typically vary between 1% to 4% in value.

Visa & MasterCard Exchange Rates Compared To Currency Spot Rates

Here’s what we found:

1. On average, MasterCard charged 58 basis points (.58%) more than the Bloomberg Spot rate and 49 basis points (.49%) more than the Bank of Canada mid-day exchange rate.
2. On average, Visa charged charged 98 basis points (.98%) more than the Bloomberg Spot rate and 87 basis points (.87%) more than the Bank of Canada mid-day exchange rate.

From the charts above, it’s clear that both Visa and MasterCard charge more than the spot rate. That said, we still do not know what methodology either network uses to determine their exchange rates. There does not seem to be a consistent margin or discernable pattern, which is slightly disconcerting when pricing and fee transparency, ought to be the goal. MasterCard should be given credit for charging about 40% less than Visa. As they move billions of dollars in foreign exchange, it’s not an insignificant difference. Oddly, Visa does appear to charge below the spot rate on several occasions. We could not figure out how or why. Regardless, Visa more than made up for it’s generosity by charging more than double MasterCard’s rate in excess of 25% of the time.

Despite the fact that both Visa and MasterCard charge more than the spot rate, they still charge a lot less than retail banks do. While MasterCard charges around 55 basis points more than the spot rate and Visa charges around 95 basis points more than the spot rate, if you exchange your Canadian dollars at the Bank, you’ll typically get charged upwards of 300 basis points. The lesson remains that one of the most cost effective ways to exchange money is through no foreign transaction fee credit cards. With exchange rate fees between 55 and 95 basis points, they are more competitive than most retail bank rates and currency exchange specialists.

However, if you use a credit card with a foreign transaction fee, which in Canada is usually around 2.5%, your total FX cost will now be between 3% and 3.5%, which become comparable to rates you can get exchanging money in your bank branch.

Best Credit Card For Foreign Transactions

We’ve changed our recommendation on which credit card we’d recommend when abroad or making a US Dollar purchase. We used to be indifferent as to which Canadian credit card was selected, as long as it didn’t come with a 2.5% foreign transaction fee. No longer. We now recommend people use the no-fee Rogers Platinum Mastercard for US Dollar transactions.

Following the demise of Chase Canada’s credit cards, there are now very few credit cards in Canada that subsidize or waive foreign transaction fees. The Rogers Mastercard offers 3% cash back rewards on all foreign purchases (Rogers cash back rewards can be redeemed as a statement credit), but then charges the 2.5% foreign transaction fee, for a net cash back rewards rate of 0.5%.